Use golden handcuffs to grow business
It is truly wonderful when business is good. You can pay down some bills. Have extra bucks to repair or replace needed equipment. Pay down bank loans. Pass out some bonuses. Take a vacation. Put some money in your retirement accounts.
But then reality sets in. You have the business right there in front of you, but you don’t have the manpower to do the work in a profitable, efficient manner. What is going on? Where are the experienced workers you need to operate a material handling dealership? Qualified techs are in short supply. Sales personnel without a non-compete are non-existent. And if qualified candidates are out there how come you are not getting a fair share of the talent pool?
So, the question comes down to what you have to do to first attract people to your company and, once you sign them up, convince them to stay the course.
It’s the “convincing” part that gets tough because you are competing with every other dealer and rental company out there for worker services. That being the case your “convincing” has to be better than that being offered by the competition, but not to the extent where it puts you in the poor house.
So how do you get there? Two ways based on what I am seeing out there.
- Improve employee benefit plan offerings
- Make your employees your partner. (Don’t panic-there is a win-win solution.)
Both suggestions are employee benefit plans. One is pretty easy to do and the other more involved, but in addition to being an employee benefit it helps shareholders get money off the table as part of the implementation (win-win.)
Share the gains
When it comes to upgrading existing plans you can improve the services and information for managing retirement money. Most companies have a 401K where employees provide most of the funding along with whatever match the employer provides.
I also suggest you consider a profit-sharing plan to increase your standing with potential recruits as well as existing employees. If the contributions are large enough you can stretch the vesting and almost be assured that employees will stay, especially if such plans are not available at other potential employers. This is the partnering piece of the puzzle because the contributions should mirror profitability – you have a good year and the contribution is larger.
Both the 401K and profit-sharing plans are reviewed and managed by the IRS. There are annual compliance requirements, tax report filings, reporting requirements, investment decisions to make, and fiduciary liability issues if you manage the plans on your own.
One option that is gaining popularity is the Multiple Employer Plan (MEP) which allows small employers to band together to obtain more favorable plan investment results and more efficient and less expensive management services. MEP’s take all the work off of your shoulders; place you in a large, powerful group in a unified plan; and provide the advantages of a stand-alone sponsor with avoidance of the expenses and administrative burden of a single employee plan. Bottom line….a sophisticated plan to manage retirement benefits without the headaches and cost of managing it yourself.
If you wish to focus on certain levels of management or individuals you can use various forms of deferred comp, also with vesting schedules to keep the golden handcuffs in force.
If you need someone to help you devise a plan or plans that will work for you, one option is Tal Diekvoss with Fiduciary Management Group. He can be reached at (920)318-1007 or [email protected].
ESOP benefits
I have seen the advantages of ESOP’s for equipment dealers and rental companies. They can truly provide financial gains for both shareholders as well as employees, IF (and that is a big IF) your company qualifies for an ESOP transaction.
In an ESOP transaction shareholders sell their stock or equity to the ESOP for fair market value. The shares owned by the ESOP are then allocated to employees based on compensation levels. Over a 10-15 year time period, the shares have the ability to gain value which in turn is transferred to the employee owned shares. Upon retirement the employee vested benefits are paid out to the employees over a period of time.
What is great for the employees is there is no cost attached to this financial opportunity. Just do your job and generate profits and cash flow. It’s not a short term investment, but one that can be quite lucrative in the long run. Many ESOP member employees I connect with say they are satisfied with the results. But I am sure if I look hard enough I will find ESOP employees that had negative experience. Of course, there are No guarantees here….the company has to continue to be profitable to make it work.
ESOP’s are also great for shareholders because of the tremendous tax and other benefits associated with an ESOP transaction. You all have to transition out at some point and even if you are not ready to retire the ESOP can make financial sense to complete now and keep working until you retire. Shareholders benefit, employees benefit and are inclined to stay for the long haul, and recruits will be enticed by the “shareholder” possibility.
But before we get carried away let me say I am experienced in this area and have to tell you that you have to produce a clean set of books, a clean balance sheet, equity in the business and annual profits and cash flow. Otherwise it may be tough to complete an ESOP transaction.
Seminar provides a chance to learn more
I know the value of ESOP’s, but I also know there is limited knowledge about them in the marketplace. That’s why I have asked a few friends to sponsor a one-day ESOP Employee Benefit Seminar (at zero cost) on May 30, 2018 in Chicago. The purpose of the seminar is twofold:
- To introduce you to ESOP’s and other tools to help with recruitment and retention of employees.
- To help you refrain from spending a ton of money investigating an ESOP transaction only to find out it is not going to happen.
Wintrust Commercial Banking and its national ESOP Practice Group will be the host and sponsor of the event along with CSG Partners and Fiduciary Management Group. Wintrust has ESOP dealer and rental experience, CSG Partners is the ESOP expert. Tal Diedvoss will represent Fiduciary Management Group and I, along with Steve Pierson (my dealer tax guru), will answer questions about the process and what to expect along the way.
Wintrust Commercial Banking is next to O’Hare Airport and thus quite convenient for a one-day program.
If you are interesting in attending, you can register on-line at http://info.csgpartners.com/esop-summit.html. Questions can also be addressed to me at (708) 347 9109 or [email protected].
If you are looking for win-win company-employee programs…. this is an option.
If you are looking to take money off the table with tremendous tax breaks …this is an option.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail [email protected] to contact Garry.
